Shopify Inc. (NYSE: SHOP)

Shopify’s Q2 2025 revenue growth of 31% to $2.68 billion represented a significant acceleration from the prior quarter and exceeded expectations. This strong performance was driven by robust growth across both subscription solutions (+17% to $656 million) and merchant solutions (+37% to $2.024 billion), demonstrating balanced growth across Shopify’s business segments.

The company’s gross profit increased 25% to $1.30 billion, resulting in a gross margin of 48.6%, slightly down from 51.1% in the prior year due to the higher proportion of merchant solutions revenue, which carries lower margins but higher absolute dollar contribution. Despite this mix shift, Shopify maintained strong profitability through operational efficiency improvements.

Operating income grew 21% to $291 million, reflecting the company’s ability to scale revenue while managing expenses effectively. The operating margin was 10.9%, compared to 11.8% in Q2 2024, showing slight pressure but still maintaining healthy double-digit margins. This performance demonstrates Shopify’s commitment to profitable growth while continuing to invest in platform capabilities and market expansion.

Net income surged to $906 million from $171 million in Q2 2024, though this includes significant gains on equity investments. Excluding the impact of equity investments, net income was $338 million compared to $291 million in the prior year, representing a more normalized 16% growth in core earnings performance.

Free cash flow reached $422 million, up 27% from $333 million in Q2 2024, resulting in a free cash flow margin of 16%. This marked the eighth consecutive quarter of double-digit free cash flow margins, highlighting the strength and predictability of Shopify’s cash generation capabilities.

Subscription Solutions revenue grew 17% to $656 million, reflecting continued growth in the merchant base and expansion of existing merchants into higher-tier plans. Monthly Recurring Revenue (MRR) increased to $185 million from $169 million in the prior year, demonstrating the health of Shopify’s recurring revenue base. This segment provides predictable revenue and high margins, serving as a foundation for the company’s financial stability.

Merchant Solutions delivered exceptional growth of 37% to $2.024 billion, significantly outpacing subscription growth and reflecting the success of Shopify’s broader platform strategy. This segment includes payment processing, Shopify Capital, transaction fees, and other services that scale with merchant GMV. The strong growth indicates both increased merchant activity and higher adoption of Shopify’s value-added services.

The revenue mix continued to shift toward Merchant Solutions, which now represents 75.5% of total revenue compared to 72.5% in the prior year. While this segment carries lower gross margins, it provides significant absolute dollar contribution and demonstrates Shopify’s success in becoming a comprehensive commerce platform beyond just software subscriptions.

Cost structure analysis shows subscription solutions cost of revenue increased 25% to $121 million, while merchant solutions costs rose 39% to $1.257 billion. The higher cost growth in merchant solutions reflects payment processing fees and other variable costs that scale with GMV, but the segment remains highly profitable in absolute terms.

The strong performance across both segments reflects Shopify’s success in serving merchants of all sizes, from first-time entrepreneurs to established global brands, and the continued expansion of commerce into new channels and geographies.

Gross Merchandise Volume (GMV) reached $87.8 billion, representing 31% year-over-year growth and accelerating from Q1 2025. This acceleration demonstrates the strength of Shopify’s platform and the resilience of e-commerce demand. On a constant currency basis, GMV grew 29%, indicating broad-based strength across global markets.

Geographic performance was particularly strong, with Europe showing exceptional growth of 42% GMV on a constant currency basis. North America and Asia Pacific also delivered accelerating growth rates quarter-over-quarter, reflecting Shopify’s success in expanding its global footprint and capturing market share in key regions.

The company’s Monthly Recurring Revenue (MRR) grew 9% to $185 million, providing a strong foundation of predictable revenue. This metric serves as a leading indicator for future subscription solutions revenue and reflects both new merchant additions and existing merchant upgrades to higher-tier plans.

Shopify’s platform continues to attract merchants of all sizes, from first-time founders launching their businesses to established global brands expanding their e-commerce capabilities. The company’s ability to serve this diverse merchant base is reflected in the sustained GMV growth and expanding average revenue per merchant.

The constant currency metrics show that underlying business performance remains strong, with foreign exchange providing only a modest tailwind to reported results. This indicates that growth is driven by fundamental business strength rather than currency fluctuations.

Shopify maintained strong profitability metrics in Q2 2025 while continuing to invest in growth initiatives:

• Gross Margin: 48.6% compared to 51.1% in Q2 2024, with the decline primarily due to the higher proportion of merchant solutions revenue in the mix
• Operating Margin: 10.9% compared to 11.8% in Q2 2024, showing slight compression but maintaining healthy double-digit levels
• Free Cash Flow Margin: 16%, matching Q2 2024 performance and marking the eighth consecutive quarter of double-digit margins
• Net Margin (excluding equity investments): 12.6% compared to 14.2% in Q2 2024, reflecting normalized profitability

Operating expenses totaled $1.011 billion in Q2 2025, up from $804 million in Q2 2024, representing an increase of 26%. This growth was primarily driven by increased investments in research and development ($394 million vs. $349 million), sales and marketing ($415 million vs. $353 million), and general and administrative costs ($122 million vs. $60 million).

The increase in R&D spending reflects Shopify’s commitment to innovation and platform development, including investments in artificial intelligence, international expansion, and new product capabilities. Sales and marketing investments support merchant acquisition and retention efforts, particularly in high-growth international markets.

Transaction and loan losses increased to $80 million from $42 million in the prior year, reflecting the growth in Shopify Capital and payment processing volumes. Despite this increase, the loss rates remain within expected ranges and are more than offset by the revenue growth from these services.

The company’s ability to maintain strong free cash flow margins while investing for growth demonstrates the scalability of the platform and the effectiveness of management’s capital allocation. Stock-based compensation was $113 million in the quarter, in line with expectations and supporting the company’s ability to attract and retain top talent.

Shopify maintains a robust balance sheet that provides significant financial flexibility for growth investments and strategic initiatives:

• Cash and Equivalents: $1.54 billion as of June 30, 2025, up from $1.50 billion at year-end 2024
• Marketable Securities: $4.28 billion, providing additional liquidity and investment income opportunities
• Total Liquid Assets: $5.82 billion, representing substantial financial resources for strategic investments
• Total Assets: $14.56 billion, up from $13.92 billion at December 31, 2024
• Shareholders’ Equity: $12.12 billion, up from $11.56 billion at year-end

The company’s balance sheet reflects the capital-light nature of its business model, with minimal property and equipment ($46 million) and a focus on intellectual property and platform development. Loans and merchant cash advances totaled $1.60 billion, representing growth in Shopify Capital, which provides financing solutions to merchants.

Shopify’s equity and other investments totaled $4.41 billion, including significant holdings in other technology companies. These investments have contributed to the strong net income performance in Q2 2025, though the company focuses on operating performance excluding these investment gains for core business evaluation.

The company maintains convertible senior notes of $919 million, providing additional capital structure flexibility. The strong balance sheet and cash position enable Shopify to pursue strategic acquisitions, increase R&D investments, and expand into new markets without requiring external financing.

Working capital management remains efficient, with trade and other receivables of $350 million representing normal business operations. The company’s operating cash flow of $428 million in Q2 2025 demonstrates strong cash generation from core operations.

Shopify continues to execute on its strategic vision of making commerce better for everyone, with several key initiatives driving long-term growth:

Key Strategic Priorities

• Global Expansion: Continued investment in international markets, with particular success in Europe where GMV grew 42% on a constant currency basis
• Product Innovation: Enhanced platform capabilities including AI-powered tools, advanced analytics, and new commerce features
• Enterprise Growth: Expansion of Shopify Plus to serve larger merchants and established brands looking to modernize their commerce infrastructure
• Ecosystem Development: Growth of the Shopify App Store and partner ecosystem to provide comprehensive solutions for merchants

Q3 2025 Guidance

For the third quarter of 2025, Shopify provided the following outlook:

• Revenue growth expected at mid-to-high twenties percentage rate year-over-year
• Gross profit dollars expected to grow at low-twenties percentage rate year-over-year
• Operating expense as percentage of revenue expected to be 38% to 39%
• Stock-based compensation expected to be $130 million
• Free cash flow margin expected to be in the mid-to-high teens

Management expressed confidence in the company’s ability to continue delivering strong growth while maintaining profitability. The guidance reflects Shopify’s balanced approach to growth investments and operational efficiency, with continued expansion in key markets and merchant segments.

Harley Finkelstein, President of Shopify, noted: “Today’s results are the payoff from bold bets we made years ago. The investments we’re making now will fuel our next chapter. At Shopify, innovation never stops.”